Guildford Dry Cleaning Service

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Dry Cleaning - UK Only - Business Plan

Financial Plan

The following topics describe the cash flow statement, profit and loss account, and balance sheet have been built using forecasted information which is as accurate and realistic as possible. These financial statements show that the business runs quite well and achieves expected results.

7.1 Important Assumptions

Sales increase gradually over the 12 months showing the positive trend of sales. Guildford Dry Cleaning is steadily gaining market share.

Gross profit and net profit rise proportionately to sales revenue.

Return on capital employed: Pendlebury (2002) indicates this ratio is useful to measure the efficiency which the long term capital has been employed. The business’ return on capital employed (ROCE) increases over the 12 months showing the effect of using capital to grow business, especially in the last months of the year.

General Assumptions
Year 1 Year 2 Year 3
Plan Month 1 2 3
Current Interest Rate 10.00% 10.00% 10.00%
Long-term Interest Rate 6.48% 6.48% 6.48%
Tax Rate 30.00% 30.00% 30.00%
Other 0 0 0

7.2 Break-even Analysis

The following table and chart show our Break-even Analysis.

Break-even Analysis
Monthly Revenue Break-even £16,281
Assumptions:
Average Percent Variable Cost 11%
Estimated Monthly Fixed Cost £14,493

7.3 Projected Profit and Loss

In general, the business might meet some difficulties in the beginning months but after that the business grows as expected and produces a small profit at the end of the year. It is not necessary for the business to gain high profit in the first year, breaking even is acceptable.

Here under are the estimated fixed costs and variable costs for the year 2006. These costs have been divided into two periods:

  • Jan – Mar
  • Apr – Dec: One more van (£7,000) will be purchased and new staff recruited; therefore interest, maintenance, petrol, salary and national insurance are increased

Fixed costs Per Month

Jan - Mar

Apr - Dec

Interest rate

1,264

1,604

Machine leasing

834

834

Building renting

600

600

Maintenance

50

100

Petrol

150

300

Salary per month

7,584

9,408

National Insurance

421

620

Total

10,903

13,466

Variable costs Per Month

Jan - Mar

Apr - Dec

Tea/Coffee break

100

100

Office cleaning

100

100

Recruitment cost

45

400

Advertisement

150

200

Telephone

300

500

Electricity

500

500

Miscellaneous

300

300

Total

1,495

2,100

 

 

 

 

 

 

 

 

 

 

 

Pro Forma Profit and Loss
Year 1 Year 2 Year 3
Sales £324,700 £422,110 £548,744
Direct Cost of Sales £35,652 £46,348 £60,252
Other Costs of Sales £0 £0 £0
Total Cost of Sales £35,652 £46,348 £60,252
Gross Margin £289,048 £375,762 £488,492
Gross Margin % 89.02% 89.02% 89.02%
Expenses
Payroll £106,944 £110,151 £113,455
Sales and Marketing and Other Expenses £2,250 £2,700 £3,000
Depreciation £4,236 £4,700 £4,700
Rent £7,200 £7,200 £7,200
Utilities £11,400 £12,000 £13,000
Inserted Row £0 £0 £0
Petrol £3,150 £3,500 £4,000
Equipment Lease £10,008 £12,000 £15,000
Maintenance £1,050 £1,200 £1,500
Office Cleaning £1,200 £1,500 £1,500
Insurance £6,840 £6,840 £6,840
Payroll Taxes (National Insurance, etc.) £16,042 £16,523 £17,018
Other £3,600 £4,000 £4,000
Total Operating Expenses £173,920 £182,314 £191,213
Profit Before Interest and Taxes £115,128 £193,449 £297,279
EBITDA £119,364 £198,149 £301,979
Interest Expense £1,469 £1,297 £976
Taxes Incurred £34,098 £57,645 £88,891
Net Profit £79,562 £134,506 £207,412
Net Profit/Sales 24.50% 31.87% 37.80%

7.4 Projected Cash Flow

Cash flow increases gradually over the year creating the positive net present value. To exist and develop in the competitive market are getting more and more difficult. Obtaining loyal customers and recruiting new customers in term of long run business are extremely difficult therefore the service aims to achieve low profit create and enhance the service’s image which are the advantage competition in the market.

Pro Forma Cash Flow
Year 1 Year 2 Year 3
Cash Received
Cash from Operations
Cash Sales £324,700 £422,110 £548,744
Subtotal Cash from Operations £324,700 £422,110 £548,744
Additional Cash Received
Sales Tax, VAT, HST/GST Received £0 £0 £0
New Current Borrowing £0 £0 £0
New Other Liabilities (interest-free) £0 £0 £0
New Long-term Liabilities £7,000 £0 £0
Sales of Other Current Assets £0 £0 £0
Sales of Long-term Assets £0 £0 £0
New Investment Received £0 £0 £0
Subtotal Cash Received £331,700 £422,110 £548,744
Expenditures Year 1 Year 2 Year 3
Expenditures from Operations
Cash Spending £106,944 £110,151 £113,455
Bill Payments £123,286 £173,837 £220,566
Subtotal Spent on Operations £230,230 £283,988 £334,021
Additional Cash Spent
Sales Tax, VAT, HST/GST Paid Out £0 £0 £0
Principal Repayment of Current Borrowing £0 £0 £0
Other Liabilities Principal Repayment £0 £0 £0
Long-term Liabilities Principal Repayment £4,084 £4,792 £5,112
Purchase Other Current Assets £0 £0 £0
Purchase Long-term Assets £7,000 £0 £0
Dividends £0 £0 £0
Subtotal Cash Spent £241,314 £288,780 £339,133
Net Cash Flow £90,386 £133,330 £209,611
Cash Balance £113,092 £246,421 £456,032

7.5 Projected Balance Sheet

The table below shows the balance sheet annual figures for the first three years of operation. First year monthly figures are presented in the appendix.

Pro Forma Balance Sheet
Year 1 Year 2 Year 3
Assets
Current Assets
Cash £113,092 £246,421 £456,032
Inventory £4,008 £5,210 £6,773
Other Current Assets £0 £0 £0
Total Current Assets £117,099 £251,631 £462,805
Long-term Assets
Long-term Assets £21,000 £21,000 £21,000
Accumulated Depreciation £4,236 £8,936 £13,636
Total Long-term Assets £16,764 £12,064 £7,364
Total Assets £133,863 £263,695 £470,169
Liabilities and Capital Year 1 Year 2 Year 3
Current Liabilities
Accounts Payable £14,180 £14,298 £18,472
Current Borrowing £0 £0 £0
Other Current Liabilities £0 £0 £0
Subtotal Current Liabilities £14,180 £14,298 £18,472
Long-term Liabilities £22,416 £17,624 £12,512
Total Liabilities £36,596 £31,922 £30,984
Paid-in Capital £32,000 £32,000 £32,000
Retained Earnings (£14,294) £65,268 £199,774
Earnings £79,562 £134,506 £207,412
Total Capital £97,268 £231,774 £439,185
Total Liabilities and Capital £133,863 £263,695 £470,169
Net Worth £97,268 £231,774 £439,185

7.6 Business Ratios

Business ratios for the years of this plan are shown below. Industry profile ratios for commercial dry cleaning and laundry establishments are shown for comparison.

Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth 0.00% 30.00% 30.00% 0.41%
Percent of Total Assets
Inventory 2.99% 1.98% 1.44% 3.56%
Other Current Assets 0.00% 0.00% 0.00% 39.13%
Total Current Assets 87.48% 95.43% 98.43% 57.85%
Long-term Assets 12.52% 4.57% 1.57% 42.15%
Total Assets 100.00% 100.00% 100.00% 100.00%
Current Liabilities 10.59% 5.42% 3.93% 26.66%
Long-term Liabilities 16.75% 6.68% 2.66% 20.51%
Total Liabilities 27.34% 12.11% 6.59% 47.17%
Net Worth 72.66% 87.89% 93.41% 52.83%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 89.02% 89.02% 89.02% 100.00%
Selling, General & Administrative Expenses 55.72% 51.42% 46.64% 78.43%
Advertising Expenses 0.00% 0.00% 0.00% 1.78%
Profit Before Interest and Taxes 35.46% 45.83% 54.17% 3.01%
Main Ratios
Current 8.26 17.60 25.05 1.57
Quick 7.98 17.24 24.69 1.30
Total Debt to Total Assets 27.34% 12.11% 6.59% 57.48%
Pre-tax Return on Net Worth 116.85% 82.90% 67.47% 5.38%
Pre-tax Return on Assets 84.91% 72.87% 63.02% 12.65%
Additional Ratios Year 1 Year 2 Year 3
Net Profit Margin 24.50% 31.87% 37.80% n.a
Return on Equity 81.80% 58.03% 47.23% n.a
Activity Ratios
Inventory Turnover 12.00 10.06 10.06 n.a
Accounts Payable Turnover 9.69 12.17 12.17 n.a
Payment Days 27 30 27 n.a
Total Asset Turnover 2.43 1.60 1.17 n.a
Debt Ratios
Debt to Net Worth 0.38 0.14 0.07 n.a
Current Liab. to Liab. 0.39 0.45 0.60 n.a
Liquidity Ratios
Net Working Capital £102,920 £237,334 £444,333 n.a
Interest Coverage 78.38 149.12 304.46 n.a
Additional Ratios
Assets to Sales 0.41 0.62 0.86 n.a
Current Debt/Total Assets 11% 5% 4% n.a
Acid Test 7.98 17.24 24.69 n.a
Sales/Net Worth 3.34 1.82 1.25 n.a
Dividend Payout 0.00 0.00 0.00 n.a